CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB+' ratings on approximately $333.7
million of revenue bonds issued on behalf of Covenant Retirement
Communities, Inc. (CRC) through the following issuing authorities:

--Colorado Health Facilities Authority;

--California Statewide Communities Development Authority;

--Plantation Health Facilities Authority.

The Rating Outlook is Stable.

KEY RATING DRIVERS

BENEFITS OF GEOGRAPHIC DIVERSITY: CRC is a multi-state continuing care
retirement community system. Fitch believes the system's overall
operating risk profile is reduced due to the size of its operations and
the geographic dispersion of its communities. CRC operates 13
communities in eight states with no single one community accounting for
more than 11% of obligated group revenues.

IMPROVING OCCUPANCY: Strong unit sales in the 4Q of FY 2014 translated
into higher independent living unit (ILU) occupancy. At the end of the
1Q fiscal 2015, (quarter-ended April 30th), occupancy in CRC's 3,014
ILU's was 87.8% compared to 83% at the end of prior year 1Q. Aggregate
occupancy in the assisted living and skilled nursing units at April 30th
was 85.2% and 87.4%, respectively.

ADEQUATE LIQUIDITY POSITION: CRC's liquidity metrics are adequate when
compared to Fitch's 'BBB' category medians. At April 30, 2014,
unrestricted cash and investments totaled $190.4 million which equated
to 343.5 days cash on hand, a cushion ratio of 6.3 times (x) and 45.5%
cash-to-debt compared to the respective 'BBB' medians of 369.0 days cash
on hand, a 6.6x cushion ratio and 50.9% cash to debt.

MODERATE DEBT BURDEN: Maximum annual debt service (MADS) of $30.2
million equates to a moderate 12.6% of fiscal 2014 revenues while
adjusted debt to capitalization at April 30, 2014 of 57% is in line with
the 'BBB' category median of 59%. Coverage of MADS was a solid 2.5x in
FY 2014 reflecting the strong net entrance fee receipts.

RATING SENSITIVITIES

SUSTAINED IMPROVED CASH FLOW: Fitch expects CRC's improved financial
performance to be sustained and debt service coverage is budgeted to
remain above 2x in FY2015. Profitability from core operations should
improve as the system benefits from higher ILU occupancy and a focus on
improving the payor mix in the SNF should add to improved profitability.

SECURITY

The bonds are secured by a pledge of gross revenue, a mortgage on
certain property and a debt service reserve fund.

CREDIT PROFILE

Covenant Retirement Communities is a type B continuing care retirement
community (CCRC) system that operates 13 facilities in eight different
states. In fiscal 2014, the Obligated Group operated a total of 3,014
ILUs, 724 ALUs and 801 SNFs and generated total operating revenues of
$229.2 million. Fitch's analysis and the financial ratios referenced in
this report are based on the obligated group results.

Geographic Diversity a Key Credit Strength

The 'BBB+' rating reflects CRC's lower overall operating risk profile
due to the size and geographic diversity of its operations and adequate
liquidity position. CRC is composed of 13 communities in eight states
with no single facility accounting for more than 11% of total obligated
group revenues. With communities in Florida, Connecticut, Minnesota,
Colorado, Illinois, California, Michigan and Washington, Fitch believes
the geographic diversity helps to reduce overall operating volatility
from adverse economic, demographic or competitive changes in a
particular service area or region. Despite challenges at certain
communities in California, Illinois and Florida, CRC's size and
geographic diversity remains a primary credit strength.

Improving Occupancy and Profitability

CRC's core operating profitability (excluding turnover entrance fee
receipts) improved in FY 2014 reflecting improving occupancy across in
the ILUs and further payor mix improvement in the SNFs. While average
annual occupancy in the ILUs showed mild improvement in 2014 (84%)
compared to the prior year (83%), strong sales in the fourth quarter
allowed occupancy in the ILUs to jump to 88.4% at FYE 2014. Eleven of
CRC's 12 communities showed higher ILU occupancy at FYE 2014 compared to
the prior year end. Only one community has an occupancy rate below rate
80% at FYE 2014 compared to five at FYE 2013.

The new marketing programs and personnel changes made over the last
12-18 months gained traction during FY 2014 as evidenced by the strong
sales and net entrance fee receipts generated in FY 2014. Net operating
margin (NOM) of 4.1% is an improvement over the prior two years but lags
the 'BBB' category median of 9.5%. In FY 2014, CRC recorded the highest
number of re-occupancies in its history at 452 which is a substantial
improvement from the 252 and 249 re-occupancies generated in the fiscal
2013 and 2012, respectively. As a result, net entrance fee receipts
jumped to $50.4 million in fiscal 2014 from $34.2 million in the prior
year. Net operating margin-adjusted of 24.1% exceeds the 'BBB' category
median of 20.3%.

Management is budgeting for 342 re-occupancies in fiscal 2015 which will
result in lower level of net entrance fee receipts compared to fiscal
2014. However, debt service coverage is expected to remain above 2x in
fiscal 2015.

Adequate Liquidity

At April 30, 2014, CRC had $190.4 million of unrestricted cash and
investments, which equated to 343.5 days cash on hand, a 6.3x cushion
ratio and 45.5% cash-to-debt. CRC's cash position is up almost $17
million compared to the prior year period despite making roughly $34
million in investment in PP&E during fiscal 2014 and a total of $11
million in swap termination/ restructuring payments ($5.475 million in
October 2013 and March 2014).

Modest Debt Burden

CRC's debt burden remains moderate with MADS of $30.2 million equating
to 12.6% of fiscal 2014 total revenues. Adjusted debt to capitalization
of 57% at April 30, 2014 is in line with the 'BBB' category median of
59%. MADS coverage including net entrance fee receipts was strong 2.5x
in fiscal 2014 compared to 1.63x in the fiscal 2013. Revenue-only
coverage of 0.8x in fiscal 2014 was improved from 0.5x in the prior
year. Through the first quarter ended April 30th, CRC generated 'all in'
coverage of 1.6x and 'revenue only' coverage of 1.1x.

Proceeds from the series 2013 bonds are being used primarily to fund
construction of 54 ILU apartments at Covenant Village of Northbrook and
a new town center at Mt Miguel Covenant Village in San Diego, CA .
According to management, the 54 ILU apartments are 89% pre-sold and are
expected to be available for occupancy in late fiscal 2015. Construction
on the project are on-time and within budget. The entrance fees
generated from the new ILUs will be used to payoff the series 2013B
TEMPS bonds. Fitch views CRC's capital structure as conservative with
roughly 80% fixed rate bonds and 20% variable rate or direct placed
debt. Of CRC's non-fixed rate debt, approximately $24.1 million are
variable rate demand bonds and $57 million are direct bank placements
with expirations in 2017 and 2019. In addition, CRC is counter-party to
two floating-to-fixed rate swap transactions with a total notional
amount of $28.6 million and a $67.5 million forward starting swap. At
May 30th, the aggregate mark-to-market value on the swaps was negative
$19.5 million. No collateral is required to be posted as long as CRC's
rating is no lower than 'BBB-' by both Fitch and S&P.

Consolidated Results

Consolidated results include the operations of non-obligated Covenant
Retirement Services (CRS) which includes a home health company, a
management service company and senior rental facilities. At fiscal
year-end 2014, CRS had total assets of $34.7 million. In fiscal 2014,
CRS generated total revenues of $18.7 million and reported a loss from
operations of $3 million which is improved from the $4.2 million loss
from operations on total revenues of $15.3 million reported in the prior
year. Using consolidated financial results for fiscal year-end 2014, CRC
had 341 days cash on hand, a 6.7x cushion ratio, 48.3% cash-to-debt, NOM
of 3.3% and NOM-adjusted of 22.2%. MADS coverage on a consolidated basis
was 2.4x.

Disclosure

CRC's disclosure requirements under its bond documents include the
submission of annual audited statements within 120 days of fiscal year
end and quarterly unaudited statements on a GAAP basis within 45 days of
quarter end to the Municipal Securities Rulemaking Board's EMMA system.

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